By developing, marketing and selling the kindle, Amazon got into the hardware business. It didn't matter they contract out the design or manufacturing (most use contract manufacturing anyway).
@$399, the Kindle is not a subsidized device but I doubt if the
Kindles have a hefty profit margin either. Ideally, Amazon should sell this as cheaply as possible (the original price probably reflects the lowest they are willing to go) because, the real profit is in selling content when Kindle owners start to buy regularly from Amazon. But I am guessing that they aren't moving as many Kindles as they like and must cut price to drive demand. $50 drop is as low as they can go now. Are they making much $ off the hardware at current price, I don't think so.
What I am contending is that Amazon should continue to focus on selling books - their expertise. They should open their store and provide content for all ebook devices (Sony, Iliad, Cybook) out there. Upcoming ebook devices will likely include the MIDs and certain type of netbooks and tablet computers. So there really is a growing market and demand for ebook buyers out there. Amazon can either move in and fill the demand (sell content) or wait until others (publisers selling directly or the likes of Borders and B&N) do it for them.